Stop Cash Shrink

There are likely several takeaways from the attorney general’s action.

First, based upon the Cole memorandum, a small but growing number of banks and credit unions believed that banking marijuana businesses presented a reasonable operational risk when balanced against possible federal prosecution. The driving force behind this decision was practical: It is very hard for smaller institutions to raise deposits and originate new profitable loans, whereas cannabis businesses are rolling in cash and require financing. In conjunction with related guidance issue by the Treasury Department’s Financial Crimes Enforcement Network, it was possible to proceed with providing banking services despite the threat of federal prosecution.

Second, the recent enthusiasm of investors and corporate entrants into the marijuana business will likely be negatively affected. Investors are extremely risk averse and will now face the prospects of indirectly (or directly) facing enforcement penalties for aiding and abetting federal drug violations — most of which are terrifying. For example, offering statements will now have to describe possible actions that might be directed at investors individually, including racketeering law violations, aiding and abetting liability and asset forfeiture. Similarly, real estate lessors will face the increased risk that real estate leased to cannabis businesses may be seized by federal authorities under asset forfeiture laws.

In short, what Sessions has achieved is increased uncertainty concerning the possibility of criminal prosecution, instead of the demonstrating leadership by encouraging a serious public policy debate about the sale and use of cannabis.